Category Archives: Financial Planning

We all like to have a bit of money tucked away in case of emergency. Expecting the unexpected is a sensible approach to take – having the money to pay for urgent repairs to your home, to have on hand for any unplanned purchases or to dip into if planning a big holiday provides peace of mind.

However, how much cash do you really need to keep in reserve?

If you’re receiving a regular income from working or drawing down from a pension, your cash funds can quickly accumulate. Upon review, we sometimes find that clients have cash funds well in excess of even a generous emergency fund!

We all know that interest rates on cash are pitifully low at the moment. Here are 5 ways in which you can better use surplus cash reserves.

Explore your ISA options

Although lots of people like the straightforward nature of cash ISAs, there are now so many more options to consider. If you are under 55 and still working, you might want to consider a Lifetime ISA. Alternatively, if you anticipate saving for more than 5 years, a stocks and shares ISA is statistically likely to deliver a return on investment. These can also be a good bet as any growth in the value of the shares, or any income you receive, is tax-free. If you’d like to put some money aside for younger relatives, JISAs can be good savings vehicles.

Remember that any contributions made into an ISA held in your name count towards your annual £20,000 ISA limit.

Investments

Investing directly in the stock market comes both with risks and potentially significant rewards. The markets have enjoyed a good run over the last 12 – 18 months, delivering generally strong returns. Whilst investing in the markets can be a bumpy ride, especially to the unexperienced investor who lacks access to all the tools a professional analyst has, the long-term results speak for themselves. However, due to volatility in the markets, if you want the flexibility of accessing your money in the short term, investing in the stock market may not be the best route to take.

Top up pensions

Personal pension contributions can significantly reduce income tax liability. There are a number of ways in which tax relief can be achieved but, most commonly, basic rate tax at 20% is automatically claimed from HMRC by your personal pension provider and added to your pot.

If you’re a higher or additional rate taxpayer, you can claim further tax relief from HMRC.

Business cash

Cash doesn’t only mean money sat in your personal account – if you have a business, large amounts of cash in your business account could be put to good use. For example, making either regular or lump sum payments into a pension rather than drawing down as dividends has many positive outcomes. Not only can you save income tax , you are also moving money into an environment free from Inheritance Tax.

Spend it!

Yes, you heard us right! Having a ‘saving’ mindset is commendable, but not if it’s to the detriment of enjoying life while you can. After all, money is only one source of wealth – experiences and living a fulfilled life is another (arguably better) one.

To discuss any of the above strategies, please contact your usual adviser.

The majority of us are aware of the Financial Services Compensation Scheme (FSCS), which provides protection for consumers in the event that a financial services firm fails. The normal cover limit provided is £85,000 per person per financial services firm and protection applies to monies held within banks, building societies or credit unions that are regulated by UK regulators the FCA and PRA.

But did you know that deposit payments up to £1 million that are made in connection with certain events are also covered under the scheme’s ‘temporary high balance’ rules?

Introduced in July 2015, the extended protection was brought in to standardise the protection of money held in banks, building societies and credit unions across the EU. Under the temporary high balance rules, deposits over £85,000 are protected for up to six months from when the amount was first credited.

Whilst the standard £85,000 cover under the FSCS is widely known, this additional ‘temporary high balance’ protection has gone under the radar of many. However, it can actually apply in many situations. When in receipt of a settlement, proceeds from a property sale or another windfall, it’s important not to rush into making any decision. The temporary high balance cover provides peace of mind and space to think about what you want to do with your money.

For more details of the rules and how they apply, visit the FSCS website.

As of 6th April 2017, the annual ISA allowance in the UK rose to £20,000. With this dramatic increase, the previous contribution level having been set at an annual maximum of £15,240, ISAs have once again been brought into the spotlight from a saving and planning perspective.

Here we look at a couple of the lesser known facts surrounding ISAs – particularly in relation to their uses and benefits following the death of an ISA account holder.

Inheriting an ISA

Under the previous rules ISA savings could be passed on to beneficiaries named in a Will or through the rules of intestacy, but automatically lost the tax-exempt ‘wrapper’ status enjoyed during life.

The new rules, brought in on 6 April 2015, allow the surviving spouse of a deceased ISA holder (including a civil partner) to not only inherit the cash from the ISA, but also to then use the funds, or funds from elsewhere, to make additional contributions to an ISA on top of their own annual subscription limit. This is known as an additional permitted subscription (APS).

Unlike a personal ISA allowance, the amount that can be invested via APS does not ‘reset’ at the start of each tax year but rather is a capped amount equivalent to the amount accumulated by the deceased in ISA wrappers prior to their death. The time period for using an APS is restricted to three years following the date of death, or if later, 180 days after the estate has been administered, although the rules differ slightly where an in specie transfer of non cash assets is elected.

APS allowances – what are the rules?

The rules are surprisingly flexible and are available whether or not the surviving spouse inherited the deceased’s ISA assets. So in theory, the ISA itself could be passed on to other family members whilst the spouse still gains the additional permitted subscription allowance up to the total value of the deceased’s ISA upon death.

Additionally, there is no cap on the potential APS allowance – the rules apply irrespective of how much the deceased had managed to save in an ISA.

When it comes to actually using the APS, the funds invested can come from inherited wealth or any other form of cash available to the surviving spouse. The surviving partner can choose where to transfer the inherited savings – either into a cash ISA or a stocks and shares ISA. They can:

Keep the money with the original ISA provider

Put the money with their own ISA provider

Open up a new cash ISA or a new stocks and shares ISA and place the additional subscription there.

It is worth noting that during the period, in which the estate is being administered, the funds from the ISA lose their tax free status and therefore any interest earned on savings will become liable to taxation.

Gresham clients will be well aware of the benefits of saving into an ISA from a long-term planning perspective and particularly the benefits of having a hybrid of pension/ISA pots when it comes to drawing an income for retirement. The death benefits associated with ISAs are lesser known, yet provide a tax friendly means of passing on wealth to a spouse in addition to a potentially substantial further tax free environment for them to use to accumulate wealth. This provides further options for married couples and can come as a particularly welcome bonus to those who are widowed unexpectedly early.

For further information about the rules in relation to inherited ISAs, please contact your usual financial adviser.

Example – Mr and Mrs Jones

Mr and Mrs Jones were cautious spenders and Mr Jones had managed to save £60,000 into ISAs held in his name. Upon his death, it was written into his Will that his ISAs be split between the couple’s two children.

Mr Jones passed away at age 61 on 2nd January 2017. As the estate is fairly straightforward to administer, it is anticipated that Mrs Jones will have until 2nd January 2020 to utilise the additional permitted subscription (assuming a cash subscription).

In theory, Mrs Jones’ total annual ISA contributions could therefore look like this:

Inheritance Tax planning is a thorny issue. With an ageing population along with rising house prices and consequent value of estates, trying to avoid a large Inheritance Tax liability is something that an increasing number of people are having to consider.

The current state of affairs

According to the latest figures, Her Majesty’s Revenue and Customs (HMRC) collected £4.7 billion in inheritance tax in the last financial year, a record sum since the introduction of the current system.

Whilst there are no planned increases to the main threshold for Inheritance Tax, as described in more detail here, an additional allowance known as the Residence Nil Rate Band (RNRB) was introduced in April 2017.

Outside of this, there are many estates that will have a surplus value in excess of the tax free bracket, with 40% tax payable on all funds over the applicable threshold on death.

Although many of us know the basic facts surrounding Inheritance Tax, as IFA’s, we find that there is often quite a gap between clients knowing about the rules and actually taking any action on them. This is usually down to one of two reasons – because there will almost certainly be a payoff; or because we don’t like to think about the inevitable – death!

Avoiding IHT vs. maintaining control

Due to Inheritance Tax rules, which require a seven year period between most gifts being made before it becomes free of tax liability, it is essential to leave enough time when Inheritance Tax planning. Although clients will generally want to avoid being liable for large sums of Inheritance Tax, we often find that when it comes to it, they are nervous about relinquishing control of their wealth. This may be for many reasons – perhaps they are unsure about letting go of their cash reserves, or else maybe they would sooner their children/grandchildren/relations make their own way rather than be handed an inheritance on a plate.

Whilst there are some Inheritance Tax strategies that can be implemented, such as the £3,000 ‘gift allowance’ per annum, these will not have a significant overall impact on larger estates.

Ignoring the ‘d’ word

As for avoiding thinking about death – there are few of us that like to embrace the thought of our own demise – especially if we still consider ourselves to be fit, healthy and active. However, making plans for the worst case scenario and actually putting them into action is the only sure-fire way of preserving the wealth you have put so much time and effort into building up. Simultaneously you can then rest assured that your loved ones will be sufficiently well placed financially in their own futures.

Are there any solutions?

If handing significant sums of wealth over into unchartered hands is a concern, it may be that there are other options rather than making outright gifts; such as utilising trusts with specified access dates and/or ages. Although technically still gifting this money to the beneficiaries, clients using this strategy can retain some control (but not benefit) over the assets.

Additionally, since the 55% death tax was scrapped as part of ‘pension freedom’ reforms, beneficiaries of inheritance via a pension stand to be much better off. Now, if a pension holder dies before the age of 75, they can pass their pension pot on without any tax implications.

If over the age of 75 upon death, withdrawals from the inherited pension are taxed at the recipient’s relevant income tax rate. These changes make pensions by far one of the most tax efficient ways to cascade wealth.

Ultimately, Inheritance Tax planning, as with any other form of financial planning, will involve making some serious decisions and being prepared to make certain sacrifices. Whilst it is likely that a compromise will have to be made somewhere along the line, Gresham’s role is to mitigate the impact this will have. For example, cash flow modelling can establish whether making lifetime gifts to loved ones is affordable and our up to date knowledge of financial products, along with allowances and legislation, goes a long way to helping you achieve your financial goals whilst retaining as much control as possible.

The personal allowance for income tax is going up to £11,500. Alongside this, the basic rate limit will be increased to £33,500, meaning higher rate tax will only be payable on earnings over £45,000. The rates are slightly different for those residing in Scotland with the basic rate limit being set at £31,500, meaning higher rate tax will be payable on earnings over £43,000.

ISA subscriptions

The annual allowance for contributions to Individual Savings Accounts (ISAs) is going up significantly to £20,000 per person.

6 April 2017 will also see the launch of the new Lifetime ISA (LISA). Anyone aged 18 up to the age of 40 will be able to open a Lifetime ISA and contribute up to £4,000 a year; receiving a 25% government top-up. This can be done every year up until the age of 50, with penalty free access to the fund allowable from the age of 60, or if the money is needed to purchase your first property.

The main drawback of the LISA is that should you need to access your money before the age of 60 and you already own a property, you will be charged a fee of 25% of the total withdrawal; the only exemption to this being if you have been diagnosed with a terminal illness. It should also be noted that any contributions made into a LISA during any tax year will form part of your annual £20,000 ISA allowance.

The idea of the new LISA is to act as a complimentary savings scheme for younger savers and is not intended to be a replacement for traditional pensions. There are different benefits and drawbacks of the Lifetime ISA vs the Help to Buy ISA and traditional pension savings vehicles. For further help in this area, or if you need any advice regarding saving for children or grandchildren, please get in touch with your adviser.

Residence Nil Rate Band

Whilst the normal IHT allowance of £325,000 will remain unchanged, the new Residence Nil Rate Band (RNRB) will be phased in over the coming years, starting from April 2017. Initially being introduced at a level of £100,000, the allowance will be applicable to individuals that own a home and have direct descendants, such as children or grandchildren. It is proposed that the RNRB will increase annually until 2020 – to £125,000 in 2018/19, to £150,000 in 2019/20 and to £175,000 in 2020/21. The new allowance is in addition to the main £325,000 nil rate band thus providing a total potential allowance of £500,000 per individual.

As with the normal IHT nil rate band, the RNRB will be transferable between married spouses/those in a civil partnership. In theory therefore, a married couple with children/grandchildren who will inherit the main residence will have an overall allowance of up to £1 million by the start of the financial year in 2020.

However, for estates valued in excess of £2 million the RNRB will be gradually withdrawn or tapered away.

Comment

The changes scheduled from April 2017 present a positive overall picture for savers and investors.

So as far as income tax allowances and thresholds are concerned, the government say the new measures will benefit 28.9m individuals of whom 24.1m will be basic rate taxpayers (an average real gain of £56) and 4.9m will be higher rate taxpayers (an average gain of £233). It is anticipated that the changes will also take a further 424,000 individuals out of income tax altogether.

The increase in the annual ISA allowance is significant. Alongside tax-free returns, accessibility in the short term and the benefits of long-term retirement planning using ISAs, another compelling reason for utilising allowances where possible relates to the additional permitted subscription (APS).

The introduction of the new LISA will provide an additional means for younger adults to save for later life and could be worth considering alongside pensions and other savings vehicles.

Following significant rises in house prices over recent years, the RNRB will go some way to easing the growing concern of IHT planning. Although the introduction of the new allowance has been welcomed by many, it has its drawbacks. Notably the allowance will only apply to wealth tied up in your main residence and it can only be left to direct descendants – i.e. children, grandchildren, step, adopted or foster children. This effectively means that those without children/direct descendants are not entitled to the new allowance.

Additionally, although the new allowance will assist some property owners with IHT planning, house prices are predicted to continue to increase over the same period, so any benefit may be reduced respectively.

As a new allowance, it will be interesting to see how the RNRB pans out. However, providing qualifying criteria are met, the new exemption could save many clients a significant level of IHT.

For more information on any of the above allowance changes, please contact us.

CPD training for professionals

Gresham Wealth Management is one of the few financial planning firms in the North West that are registered to deliver CPD training. Committed to supporting fellow professionals with their ongoing professional development and understanding of key financial planning measures, our team have delivered training to over 350 accountants and solicitors in the region. Not only do these sessions help to keep you and your team ‘in the know’ on current legislation, they also help to identify potential benefits to your firm and your clients.
Get in touch with us to discuss arranging a tailor made session for you and your team.

Keyman Protection

The death or prolonged illness of a key employee can put your business under financial strain. Keyman insurance compensates a business for the financial loss brought about by death or long term illness of a key employee.

It provides a valuable cash injection to the business which can help with a potential loss of turnover and/or to provide funds to replace the key person.

Shareholder/Partnership Protection

One of the great risks of a partnership or limited company is that one of your colleagues may die, with their share of the business passing to someone else. That person may have little interest in the business or be unable to meet the requirements of running the business. Equally a partner or shareholder who suffers a serious illness may not want to continue in the business after treatment and look to be compensated for their exit from the business.

Personal Injury Trusts

Without a personal injury trust in place, you can lose entitlement to present and future means-tested state benefits, including local authority contributions to the cost of long-term care.
We offer simple, jargon free advice to check if a personal injury trust is required on receipt of a claim, generally at no cost to you.

Retirement Planning

Retirement Planning is a complex area which means different things to different people. How you plan for retirement can be wide and varied, but it must be planned for well in advance.

You may have existing pension plans in place, like a company pension or personal pension plan or perhaps you’re just starting to save. Whatever your situation, Gresham Wealth Management Ltd can provide the right advice to create a retirement plan that’s tailor-made for you.

Ask the Experts…

Client Testimonials

Thanks again for your advice, you have given me the kick I needed to take control and I’m very grateful for that.

Before I chose Gresham I spoke to a number of IFA’s but none of them gave me the same confidence I had when I spoke to Morven. Everything, both written and spoken, is explained in an easy to understand way. All my pensions have been dealt with extremely efficiently and I am very happy with the service I have received from everyone at Gresham.

We are both very grateful for the time you spent with us in explaining various options. We certainly feel we now both have a much better understanding of our situation & the decisions which we need to consider moving forward.

With great thanks for all your reassuring attention over the last year. It means more to me than I can express in a few words.

I just want to thank you and your team so very much for all you do for me throughout the year. It is a real comfort to know that my investments are in such capable hands. I literally couldn’t do it on my own.

You’ve solved that dilemma for me… Thank you for being so clear and honest as always.

A very personalised service… All advice is tailored to my needs with great consideration to issues I may not have thought of myself. I feel confident about my future finances.

Just a big thank you for all you have done for our family. We do appreciate it.

Thank you so much again for your time and brilliant advice.

We feel we can phone at any time during office hours if we need anything clarifying. Our financial adviser knows our personal circumstances and is in tune with our goals and lifestyle. His advice has been and continues to be excellent.